Less than five months ago, on November 1st 2018, the U.S. dollar climbed to 6.9806 against the Chinese yuan, following a sharp rally from as low as 6.2359 in March. Unfortunately for bulls, USDCNH couldn’t maintain the positive momentum. As of this writing, it is hovering around 6.7200.
In order to find out if the recent slide is going to continue, let’s examine the pair’s 4-hour chart through the prism of the Elliott Wave principle.
The 4-hour chart of USDCNH reveals that the structure of the decline from 6.9806 to 6.7071 is impulsive. It is labeled 1-2-3-4-5, where the sub-waves of wave 3 and wave (iii) of 3 are clearly visible, as well.
Impulses point in the direction of the larger trend, but are followed by a three-wave correction before it can resume. According to this analysis, traders can expect a three-wave recovery to lift USDCNH to at least 6.8000 from now on.
The MACD indicator provides another reason for optimism. It shows a double bullish divergence between waves 3 and 5. If this count is correct, the bulls are eager to return and the time to join the bears is long gone.
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